Problem Set 2 You have been hired by the small country of Farmland as a macroeconomic advisor. After several years of growth, the country has fallen into a recession, and their former chief economist has passed away unexpectedly. Fortunately, they have left a robust set of statistics for you to work from Farmland is a closed economy there is no international trade. They do have a govemment, and a proportional tax system. The tax rate is 15%. It is late in Year 4, and the records left by the former chief economist include a projection of the coming year's adult civilian population and labor force. Population + Expenditure Labor Year Population Force Employed Consumption Investment Government 1 1014 710 677 $1.344.180 $415,000 $310.000 2 1024 717 689 $1,384,903 $430,000 $320,000 3 1041 729 704 $1,451,864 $460.000 $330.000 4 1052 736 683 $1,414,312 $345,000 $340,000 5 1068 748 Price Information (based on average monthly spending for individuals) Item Year 1 Year 2 Year 3 Year 4 Entertainment $8 $8 $10 $7 Clothing $11 $11 $10 $10 Groceries $25 $22 $20 $18 Healthcare $15 $15 $15 $15 Transportation $6 $6 $5 $6 Education $12 $13 $15 $17 Housing $75 $80 $85 $85 1. Use the figures for nominal GDP. consumption, and the tax rate to estimate the marginal propensity to consume (take the average of the available years), and the associated multiplier 2. Use Okun's law to estimate how much (in base year dollars) Real GDP would need to grow in order bring the unemployment rate down to 4%. 3. Use the average rate of inflation from years 1 through 4 to estimate what nominal GDP would need to be to bring about full employment, assuming Investment will rise to $350,000, how much will government spending need to rise to reach full employment? By how much would 4. What will the projected government deficit be if the government enacts your recommended economic stimulus measure